Medicaid Financial Management
Better Oversight of State Claims for Federal Reimbursement Needed Gao ID: GAO-02-706T June 13, 2002The Medicaid program served 33.4 million low-income families as well as elderly, blind, and disabled persons at a cost of $119 billion to the federal government and $88 billion to the states in fiscal year 2000. States are responsible for safeguarding Medicaid funds by making proper payments to providers, recovering misspent funds, and accurately reporting costs for federal reimbursement. At the federal level, the Centers for Medicare and Medicaid Services (CMS) is responsible for overseeing state financial activities and ensuring the propriety of expenditures reported for federal reimbursement. Audits of state Medicaid finances have identified millions of dollars of questionable or unallowable costs. In addition, annual financial statement audits have identified many internal control weaknesses in CMS oversight of state Medicaid operations. CMS has only recently begun to assess areas at greatest risk for improper payments. As a result, controls that focus on the highest risk areas and resources had not yet been deployed for areas of greatest risk. Since 1998, auditors have noted that CMS failed to institute an oversight process that effectively reduced the risk of inappropriate medical claims and payments. CMS attributed most of the weaknesses in its oversight to staff reductions at the same time Medicaid expenditures and oversight responsibilities have increased.
GAO-02-706T, Medicaid Financial Management: Better Oversight of State Claims for Federal Reimbursement Needed
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United States General Accounting Office:
GAO:
Testimony:
Before the Subcommittee on Government Efficiency, Financial Management
and Intergovernmental Relations, Committee on Government Reform, House
of Representatives:
For Release on Delivery:
Expected at 10 a.m.
Thursday, June 13, 2002:
Medicaid Financial Management:
Better Oversight of State Claims for Federal Reimbursement Needed:
Statement of Linda M. Calbom:
Director, Financial Management and Assurance:
GAO-02-706T:
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to discuss the results of our review of
Medicaid financial management by the Centers for Medicare and Medicaid
Services (CMS). My testimony today summarizes our report to the
Subcommittee, published in February of this year,[Footnote 1] which
discusses the need to improve federal oversight of state Medicaid
financial activities.
As you know, the federal government and the states share responsibility
for the fiscal integrity and financial management of the jointly funded
Medicaid program. In fiscal year 2000, the Medicaid program served about
33.4 million low-income families as well as certain elderly, blind, and
disabled persons at a cost of $119 billion to the federal government and
$88 billion to the states for program payments and administrative
expenses.
States are the first line of defense in safeguarding Medicaid funds
through their responsibilities for making proper payments to providers,
recovering misspent funds, and accurately reporting costs for federal
reimbursement. At the federal level, CMS is responsible for overseeing
state financial activities and ensuring the propriety of expenditures
reported by the states for federal reimbursement.
Audits of state Medicaid finances conducted annually in accordance with
the Single Audit Act, as amended, have identified millions of dollars of
questionable or unallowable costs incurred by state Medicaid agencies.
In addition, annual financial statement audits required under the Chief
Financial Officers Act of 1990, as expanded by the Government
Management Reform Act of 1994, have identified many internal control
weaknesses in CMS oversight of state Medicaid operations.
In light of these findings, you asked that we review the adequacy of
CMS‘s financial oversight process for Medicaid. We assessed whether (1)
CMS has an adequate oversight process to help ensure proper Medicaid
expenditures, (2) CMS adequately evaluates and monitors its oversight
process, making adjustments as necessary, and (3) the current CMS
organizational structure for financial management is conducive to
directing its oversight process and sustaining future improvements.
To evaluate financial oversight and monitoring at CMS, along with the
control activities used to help ensure the propriety of Medicaid
expenditures, we performed work at CMS headquarters and regional
offices, surveyed regional financial management staff and reviewed CMS
manuals and other documentation and audit reports. To determine
whether CMS‘s organizational structure for financial management is
conducive to effectively directing its oversight process and sustaining
future improvements, we interviewed directors, managers responsible for
financial management at headquarters, and managers in five regions. We
compared information we gathered about organizational structure,
communications, and improvement initiatives with the Comptroller
General‘s Standards for Internal Control in the Federal Government.
[Footnote 2] We performed our work from October 2000 through September
2001 in accordance with generally accepted government auditing
standards.
As discussed in our February 2002 report, we found that CMS has
financial oversight weaknesses that leave the Medicaid program
vulnerable to improper payments. The Comptroller General‘s Standards
for Internal Control in the Federal Government requires that agency
managers perform risk assessments, act to mitigate identified risks,
and then monitor the effectiveness of those actions. In addition, the
standards provide that agencies should ensure that the organizational
structure is designed so that authority and responsibility for internal
controls are clear. CMS oversight had weaknesses in each of these four
areas, which I will discuss in turn.
CMS Had Not Implemented a Risk-Based Approach in Reviewing
Expenditures:
Our review found that CMS had only recently begun to assess areas at
greatest risk for improper payments. As a result, controls were not in
place that focused on the highest risk areas and resources had not yet
been deployed to areas of greatest risk. The Comptroller General‘s
Standards for Internal Control in the Federal Government requires that
agency managers perform risk assessments and then act to mitigate
identified risks that could impede achievement of agency objectives.
Since 1998, financial auditors responsible for the annual financial
statement audit of Medicaid expenditures have noted that CMS failed to
institute an oversight process that effectively reduced the risk of
inappropriate Medicaid claims and payments.[Footnote 3] Financial
auditors identified internal control weaknesses that increased the risk
of improper payments, including a significant reduction in the level of
detailed analysis performed by regional financial analysts in reviewing
state Medicaid expenses; minimal review of state Medicaid financial
information systems; and lack of a methodology for estimating the range
of Medicaid improper payments on a national level. The auditors
recommended that CMS implement a risk-based approach for overseeing
state internal control processes and reviewing Medicaid expenditures.
Regarding the auditor‘s findings and recommendations, CMS officials
attributed most of the weaknesses in its oversight to reductions in
staff at the same time Medicaid expenditures and oversight
responsibilities increased. CMS data show a 32 percent drop in regional
financial management staff from 95 full-time equivalent positions in FY
1992 to approximately 65 in FY 2000. At the same time, federal Medicaid
expenditures increased 74 percent from $69 billion to $120 billion.
[Footnote 4] On average, each of the 64 regional financial analysts is
now responsible for reviewing almost $1.9 billion in federal Medicaid
expenditures each fiscal year as compared to an average of about $0.7
billion a decade ago.
In light of these conditions, CMS managers acknowledged that they
needed to revise their oversight approach and in April 2001, began to
develop a risk-based approach for determining how best to deploy CMS
resources in reviewing Medicaid expenditures.
This new assessment effort required each regional office to provide data
on the states and territories in its jurisdiction based on regional
analyst experience and knowledge. For each type of Medicaid service and
administrative expense, the Medicaid risk analysis estimates the
likelihood and significance of risk based on dollars expended annually
and measures risk based on factors such as unclear payment policies;
state payments involving county and local government; and federal audit
results. The risk analysis provides a score for each state that is
intended to specify the areas of greatest risk for improper payments.
Medicaid financial managers also tabulated a national risk score for
each type of Medicaid service and administrative expense using the
state risk scores. However, at the time of our review, CMS had not
taken steps to use the risk analysis in deploying its regional
financial oversight resources. Medicaid financial managers in
headquarters and the regional offices plan to develop work plans that
will allocate resources based on the risks identified from the
analysis. CMS expects to implement these work plans in reviewing the
state‘s quarterly expenditure reports for fiscal year 2003.
In evaluating the Medicaid risk analysis, we considered strategies that
leading organizations used in successfully implementing risk management
processes. Our executive guide, Strategies to Manage Improper
Payments[Footnote 5] included two risk assessment strategies that are
particularly applicable to CMS. These are that management should:
* use information developed from risk assessments to form the basis
from which it determines the nature of any corrective actions, and to
provide baseline data for measuring progress in reducing payment
inaccuracies and other errors; and;
* reassess risks regularly to evaluate the effect of changing
conditions, both internal and external, on program operations.
While the Medicaid risk analysis is a good start, we identified several
improvements that should be made to the assessment before it is used to
deploy resources. First, the analysis does not sufficiently take into
account state financial oversight activities in assessing the risks for
improper payments in each state. Several states have implemented
techniques such as (1) prepayment edits and reviews to help prevent
improper payments, (2) screening procedures to prevent dishonest
providers from entering the Medicaid program, (3) postpayment reviews
to detect inappropriate payments after the fact, and (4) payment
accuracy studies to measure the extent of improper payments. CMS did
not ask the regional financial analysts to consider whether states use
these techniques, which have identified millions of dollars in
overpayments. While regional financial analysts may know about many
activities like these through their oversight responsibilities, without
collecting and documenting this information, CMS does not have a
complete picture of the risk for improper payments in each state; nor
will it have comprehensive information to determine the appropriate
level of federal oversight that should be applied.
A second deficiency we found in the Medicaid risk analysis is that it
did not specifically integrate information about state anti-fraud and -
abuse efforts in assessing risks for each state. Regional financial
analysts were instructed to consider the last time the regional office
or HHS/OIG conducted a review or audit as one of the factors in
determining the likelihood and significance of risk in each state.
However, the analysts were not specifically instructed to consider
results from reviews of state anti-fraud and -abuse efforts recently
conducted by the CMS Medicaid Alliance for Program Safeguards, which
has performed structured reviews in 16 states and plans to continue the
reviews until all states are covered. CMS could gain valuable
information for more accurately assessing the level of risk for
improper payments in these 16 states as well as the appropriate level
of federal oversight required.
Third, we found that the Medicaid risk analysis did not include
mechanisms to ensure that such analysis would be an ongoing part of
financial oversight. As identified risks are addressed and control
activities are changed, agency managers should have methods in place to
revisit their analysis to determine where risks have decreased and new
ones have emerged. Medicaid financial managers had not determined how
they would accomplish this.
Finally, the Medicaid risk analysis would be strengthened if states were
systematically estimating the level of improper payments in their
programs. CMS management has recognized this and has begun efforts to
develop an approach for estimating improper Medicaid payments. In
September 2001, nine states responded to a CMS solicitation to
participate in pilot studies to develop payment accuracy measurement
methodologies. The objective is to assess whether it is feasible to
develop a single methodology for the diverse state Medicaid programs
and to explore whether the range of improper Medicaid payments can be
estimated nationally. Each of the nine states involved is developing a
different measurement methodology. CMS managers expect the states to
complete the pilots during fiscal year 2003, after which time CMS will
select several of the state methodologies as test cases for fiscal year
2004. It is important that CMS continues to emphasize development of
these payment accuracy reviews on a state-by-state basis and ultimately
on a national level, since this is a key baseline measure for managing
improper payments in the Medicaid program.
Control Activities Were Not Effectively Implemented:
Our review also found that while CMS had certain control activities in
place to oversee Medicaid programs, it was not effectively implementing
them, and therefore not mitigating identified risks. Control activities
are an integral part of an organization‘s efforts to address risks that
lead to fraud and abuse. Given the current level of resources and the
size and complexity of the Medicaid program, CMS needs a different
approach that incorporates new oversight techniques and strategies as
well as the results of the risk assessment discussed previously.
In 1994, CMS began changing its oversight approach in an attempt to
address resource challenges and growth in Medicaid expenditures. At that
time, regional offices shifted from emphasizing detailed review of
Medicaid expenditure data to increasing the level of technical
assistance provided to states. Auditors of CMS financial statements
found that as a result of this shift, regional offices were not
providing appropriate review and oversight of state Medicaid programs,
thus increasing the risk that errors and misappropriation could occur
and go undetected. In our review, we found that the weaknesses
identified by the auditors were still present.
In August 2001, we surveyed regional financial analysts to obtain their
perspectives on the design and implementation of the Medicaid financial
oversight process, covering the period from October 1, 1999, through the
date of the survey. In comments to the survey, some regional analysts
indicated that they were inundated with responsibility for multiple
control activities and unable to perform them effectively. We asked the
analysts to rate each of the control activities that they perform. The
activity rated most important by 89 percent of those surveyed was
quarterly expenditure reviews performed on-site at state Medicaid
agencies. However, when asked about the adequacy with which they
performed on-site expenditure reviews, almost 36 percent rated their
performance ’inadequate“ or ’marginal.“ In discussions, many financial
analysts attributed deficiencies in expenditure reviews to inadequate
staff resources, the low priority placed on financial management
oversight, lack of training, and conflicting priorities.
Survey respondents also rated two other activities as important in
overseeing the propriety of Medicaid activities”these were activities to
(1) defer and disallow[Footnote 6] Medicaid expenditures and (2)
perform focused financial management reviews. While more than 75
percent of analysts rated these activities as highly important, data
provided by CMS indicate, however, that the amount of Medicaid
expenditures disallowed by regional analysts has declined. For example,
from 1990 to 1993, analysts disallowed on average $239[Footnote 7]
million in expenditures annually. However, for fiscal years 1997
through 2000, analysts disallowed on average $43 million annually,
which represents an 82 percent decline. During the same period,
Medicaid expenditures went from an average of $58 billion annually to
$106 billion annually”an increase of 83 percent.[Footnote 8]
Similarly, focused financial management reviews declined. These reviews
generally involve selecting a sample of paid claims related to certain
types of Medicaid services provided. The reviews have been useful in
identifying unallowable costs outside of those detected by reviewing
quarterly expenditure reports. According to CMS managers, in fiscal
year 1992, analysts performed about 90 in-depth reviews of specific
Medicaid issues that identified approximately $216 million in
unallowable Medicaid costs. In fiscal year 2000, analysts only
performed 8 focused financial management reviews but these 8 reviews
resulted in almost $45 million in disallowed costs”an average of about
$5.6 million per review. As demonstrated, this control activity is
effective in detecting unallowable Medicaid costs; however, it must be
consistently performed for cost savings to be realized.
CMS is taking actions to improve oversight by beginning a comprehensive
assessment of its Medicaid oversight activities. However, agency
managers are concerned that their ability to address identified risks
effectively may be hindered without additional oversight resources. In
the interim, CMS plans to use the current oversight process (i.e.,
quarterly expenditure reviews and technical assistance) for targeting
those Medicaid issues that the new risk analysis identifies.
In assessing what steps CMS could take to more efficiently and
effectively carry out its responsibilities to help ensure the propriety
of Medicaid finances, we considered strategies that other organizations
have used in successfully addressing risks that lead to fraud, error,
or improper payments. As discussed in our executive guide on Strategies
to Manage Improper Payments, key strategies include:
* selecting appropriate control activities based on an analysis of the
specific risks facing the organization, taking into consideration the
nature of the organization and the environment in which it operates.
* performing a cost-benefit analysis of potential control activities
before implementation to ensure the cost of the activities is not
greater than the benefit.
* contracting activities out to firms that specialize in specific areas
like neural networking, where in-house expertise is not available.
Our executive guide points out that many organizations have implemented
control techniques including data mining, data sharing, and neural
networking to address identified risk areas and help ensure that program
objectives are met.
* Data mining is a technique in which relationships among data are
analyzed to discover new patterns, associations, or sequences. Using
data mining software, the Illinois Department of Public Aid, in
partnership with the Office of Inspector General at the Department of
Health and Human Services, identified 232 hospital transfers that may
have been miscoded as discharges, creating a potential overpayment of
$1.7 million.
* Data sharing allows entities to compare information from different
sources to help ensure that Medicaid expenditures are appropriate. Last
year we reported on a data sharing project called the Public Assistance
Reporting Information System (PARIS) that has identified millions of
dollars in costs savings for states.[Footnote 9] PARIS helps states
share information on public assistance programs, in order to identify
individuals who may be receiving benefits in more than one state
simultaneously. Using the PARIS data match for the first time in 1997,
Maryland identified numerous individuals who no longer lived in the
state but for whom the state was continuing to pay a Medicaid managed
care organization. The match identified $7.3 million in savings for the
Medicaid program.
* Neural networking is a technique used to extract and analyze data. A
neural network is intended to simulate the way a brain processes
information, learns, and remembers. This technique can help identify
fraud schemes by analyzing utilization trends, patterns, and complex
interrelationships in the data. In 1997, the Texas legislature mandated
the use of neural networks in the Medicaid program. In fiscal year
2000, using neural networking, the Texas‘ Medicaid Fraud and Abuse
Detection System recovered $3.4 million.
These techniques, which have been shown to achieve significant savings
by identifying and detecting improper payments, could help CMS better
utilize its limited resources in applying effective oversight of
Medicaid finances at the federal level.
Some state Medicaid agencies have already implemented data mining, data
sharing, and neural networking techniques to help ensure Medicaid
program integrity. State auditors and HHS/OIG staff have also had
success using these techniques in overseeing state Medicaid programs.
However, resources devoted to protecting Medicaid program integrity and
the use of these techniques varies significantly state by state. When
designing its Medicaid financial oversight control activities, CMS
should take into consideration the use of data mining, data sharing,
and neural networking as well as other control activities performed at
the state level. In states where these techniques are not being used,
CMS should consider using these tools in its oversight process.
Monitoring Activities Were Limited in Scope and Effectiveness:
The Comptroller General‘s Standards for Internal Control in the Federal
Government requires that agency managers implement monitoring
activities to continuously assess the effectiveness of control
activities put in place to address identified risks. Our review found
that CMS had few mechanisms in place to continuously monitor the
effectiveness of its oversight. Managers had not established
performance standards for financial oversight activities, particularly
their expenditure review activity. Limited data were collected to
assess regional financial analyst performance in overseeing state
Medicaid programs. Without effective monitoring, CMS did not have the
information needed to help assure the propriety of Medicaid
expenditures.
A CMS official told us that steps would be taken within the next year to
begin monitoring the effectiveness of the Medicaid financial oversight
process. Medicaid financial managers plan to reinstitute a performance
reporting process that was in place prior to 1993. While this is a good
step, the previous process lacked several elements necessary for
effective internal control monitoring. For example, the performance
reporting process did not establish agency-specific goals and measures
for evaluating regional performance in reducing payment errors and
inaccuracies. In addition, there were no formal criteria or standard
estimation methodologies for regions to use in measuring the amount of
unallowable costs that the states avoided because of technical
assistance provided before payment. As discussed in our executive
guide, Strategies to Manage Improper Payments, establishing such goals
and measures is key to tracking the success of improvement initiatives.
In addition, the CMS audit resolution procedures did not collect
sufficient information on the status of audit findings or ensure their
timely resolution, as required by federal internal control standards.
We found that audit resolution and monitoring activities performed by
CMS and its regional offices were limited. Audit resolution activities
were also inconsistently performed across the regions.
Within CMS, three units share responsibility for audit resolution
activities related to the Medicaid program. In accordance with the HHS
Grants Administration Manual,[Footnote 10] regional financial analysts
are responsible for working with auditors to resolve findings, ensure
questioned costs are recovered, verify that corrective actions have
been taken, and document the status of audit resolution in quarterly
reports. The Division of Audit Liaison (DAL) is responsible for
maintaining a tracking system for each audit report and related
findings, monitoring the timeliness and adequacy of audit resolution
activities, distributing all audit clearance documents, and preparing
monthly reports on the status of audit resolution and collection
activities. The Division of Financial Management (DFM), the
headquarters unit responsible for Medicaid financial management, has one
headquarters staff person responsible for coordinating and interacting
with DAL and regional analysts to ensure that Medicaid related findings
are resolved. We found that many of these responsibilities were not
being effectively carried out or were carried out inconsistently.
For instance, in discussions with regional financial analysts, we found
that they spend very little time resolving state single audit findings
due to competing oversight responsibilities. As a result, these
findings are not always resolved, and related questioned costs are not
promptly recovered. We found unrecovered questioned costs totaling $24
million that were identified in audit reports that had been issued for
years prior to fiscal year 1999. In addition, we found that as of
September 30, 2001, regional analysts had not determined whether
actions had been taken to resolve 85 Medicaid findings included in
state single audit reports for fiscal year 1999. Lack of timely follow-
up on financial management and internal control issues increases the
risk that corrective actions may not have been taken, and that
erroneous or improper payments are continuing to be made.
We also found that the regional financial analysts inconsistently
followed procedures for monitoring, tracking, and reporting on the
resolution of single audit and HHS/OIG audit findings. For example, 3
of the 10 regions had not prepared quarterly status reports that are
intended to provide information on corrective actions that states have
taken to resolve audit findings.
Further, pertinent information was not identified, documented, and
distributed among those responsible for audit resolution. The internal
control standard related to information and communication provides that
pertinent information be identified, recorded, and distributed to the
appropriate areas in sufficient detail, and at the appropriate time to
enable the entity to carry out its duties and responsibilities
efficiently and effectively. In our review, we found that the monthly
DAL report intended to provide a complete list of all audits with
unresolved Medicaid findings did not meet this standard. We analyzed a
list provided by the HHS/OIG that included 23 Medicaid related reports
issued by the HHS/OIG and state auditors in fiscal year 2001. We found
four reports from the HHS/OIG list that were not included in DAL
monthly reports related to the second, third, and fourth quarters of
that year. This information is critical and must be distributed to the
regions to ensure that they are acting to resolve all Medicaid related
findings.
We also found that the regions did not document information critical to
tracking unresolved audits in their regional quarterly status reports.
The regions reported which audits had been resolved but not the status
of those still under review. This makes it difficult to track audit
status.
Organizational Structure Impedes Effective Oversight:
The current organizational structure of CMS compounds the weaknesses I
have highlighted today. This organizational structure has created
challenges to effective oversight because of unclear lines of authority
and responsibility between the regions and headquarters. Although the 10
regional offices are the CMS front line in overseeing state financial
management and Medicaid expenditures, there are no reporting
relationships to DFM, the headquarters unit responsible for Medicaid
financial management.
For example, a working group headed by the director of DFM updated
guidance for expenditure reviews in September 2000 in response to
concerns raised by auditors about the inconsistency in expenditure
reviews across regions. While the guide strongly encouraged regional
analysts to perform all procedures, it did not mandate that they do so.
Headquarters financial managers do not have direct authority to enforce
such a directive and regional managers have discretion in how resources
are utilized. Similarly, the guide allowed regional branch managers the
discretion to review regional analyst‘s expenditure review workpapers
for compliance with the guide or simply to obtain written or verbal
assurance from the analyst that the procedures were performed. By
allowing supervisors to satisfy their review responsibilities merely
with verbal assurance, CMS minimized the effectiveness of this basic
control. During our site reviews, we found evidence that supervisory
reviews were not conducted.
The CMS organizational structure also hindered efforts to evaluate and
monitor regional office performance. At the time of our review, there
were few formal requirements for regions to report to headquarters and
CMS did not collect, analyze, or evaluate consistent information on the
quality of regional financial oversight for Medicaid across the
country. Previous efforts to monitor performance were discontinued
because regional staff resources were not available to collect and
submit the data to headquarters managers. Headquarters managers, in
turn, did not have the authority to require regions to collect such
data. As a result, Medicaid financial managers in headquarters were not
in a position to provide formal feedback to region financial management
staff to improve their performance and therefore have not been in a
position to assess the effectiveness of Medicaid oversight activities.
The current organizational structure also poses challenges to
implementing corrective actions aimed at addressing oversight
weaknesses and improving accountability. Over the past 2 years,
headquarters financial managers have taken steps to develop and
implement improvements to the financial oversight process. Medicaid
staff are currently:
* developing risk analysis to identify expenditures of greatest risk;
* working with states to develop methodologies for estimating Medicaid
improper payments;
* developing work plans that guide efforts to allocate financial
oversight staff and travel resources based on the risk analysis; and;
* developing performance-reporting mechanisms.
Medicaid staff have also recently:
* formed a financial management strategy workgroup of headquarters and
regional financial management staff to review the entire Medicaid
financial oversight process and determine the proper structure for an
adequate oversight process;
* updated its expenditure and budget review guides; and;
* gathered information on how regional financial analyst staff time is
allocated between oversight responsibilities.
Headquarters DFM managers recognize that regional office commitment is
critical to successfully implementing and sustaining its improvement
initiatives. The current structural relationship could diminish the
chances of such success. Headquarters managers expressed concern that
despite recent efforts to develop risk analysis and implement work
plans that allocate resources based on identified risks, regional
managers will still have the authority to decide how oversight
resources are utilized. Given the multiple oversight activities that
regional financial analysts are responsible for, headquarters managers
have no assurance that review areas included in the work plans will be
given priority in each region. Headquarters managers may experience
similar difficulties in reestablishing performance reporting. According
to one senior Medicaid manager, some regions have already petitioned
headquarters managers not to use data on the amount of expenditures
deferred and disallowed in gauging performance.
During our review, we asked regional financial analysts about several
recent improvement initiatives to gauge their knowledge and
participation in the initiatives. Several analysts we spoke with did
not think the risk assessment effort was useful because they felt that
they already knew the risks within the states that they were
responsible for and did not need a formal assessment to tell them that.
In our survey, we asked regional financial analysts to rate the
importance of the risk assessment, staff time allocation effort, and
review guide updates to overall financial oversight. Approximately half
of the survey respondents thought the initiatives were of marginal or
little importance. During pretests of our survey, several analysts said
they did not understand the purpose of the initiatives because no one
had communicated to them how the information was going to be used.
In discussions with headquarters managers, they acknowledged that a
written plan or strategy that describes the initiatives and the
responsibility for implementing them was still being drafted. Such a
plan or strategy could be very useful in soliciting regional analyst
support. More importantly, headquarters managers acknowledged that
performance accountability mechanisms for the regions are needed to
implement improvements successfully. CMS is currently planning some
changes that may improve mechanisms to hold CMS financial managers,
including regional managers and administrators, accountable for
critical tasks. CMS has developed a restructuring and management plan
that seeks to add specific responsibilities tied to agency goals into
senior managers‘ performance agreements. CMS has not determined how
Medicaid financial management oversight responsibilities that can be
evaluated will be included in the plan. This information is key to
establishing a sound internal control environment for Medicaid finances
throughout CMS.
As you can see, this structural relationship has created challenges in
(1) establishing and enforcing minimum standards for performing
financial oversight activities, (2) routinely evaluating the regional
office oversight, and (3) implementing efforts to improve financial
oversight. As a result, CMS lacks a consistent approach to monitor and
improve performance among the units that share responsibility for
financial management and ingrain a sound internal control environment
for Medicaid finances throughout CMS.
In closing, Mr. Chairman, I want to emphasize that while CMS is acting
to improve its financial oversight of the Medicaid program, the
increasing size and complexity of the program, coupled with diminishing
oversight resources, requires a new approach to address these
challenges. Developing baseline information on Medicaid issues at
greatest risk for improper payments and measuring improvements in
program management against that baseline is key to achieving effective
financial oversight. Determining the level of state activities in place
to monitor and control Medicaid finances is also critical to
determining the extent and type of control techniques as well as the
amount of resources CMS must apply at the federal level to oversee the
program adequately. Establishing clear lines of authority and
performance standards for CMS oversight would also provide for a more
efficient, effective, and accountable Medicaid program. Our report
includes recommendations in each of these areas. CMS‘s ability to make
the kind of changes that we are recommending will require top-level
management commitment, a comprehensive financial oversight strategy
that is clearly communicated to all those responsible for program
oversight, and clear expectations for implementation of the changes.
Mr. Chairman, this concludes my statement. I would be happy to answer
any questions you or other members of the subcommittee may have.
Contact and Acknowledgments:
For information about this statement, please contact Linda Calbom,
Director, Financial Management and Assurance, at (202) 512-9508 or at
calboml@gao.gov. Individuals making key contributions to this statement
include Kimberly Brooks, W. Ed Brown, Lisa Crye, Chanetta Reed, Vera
Seekins, Taya Tasse and Cynthia Teddleton.
[End of section]
Footnotes:
[1] U.S. General Accounting Office, Medicaid Financial Management:
Better Oversight of State Claims for Federal Reimbursement Needed,
[hyperlink, http://www.gao.gov/products/GAO-02-300] (Washington D.C.:
Feb. 28, 2002).
[2] U.S. General Accounting Office, Standards for Internal Control in
the Federal Government, [hyperlink,
http://www.gao.gov/products/GAO/AIMD-00-21.3.1] (Washington D.C.: Nov.
1999).
[3] In some instances, these findings were included in the management
letters that accompanied the audited financial statements for fiscal
years 2000, 1999, and 1998.
[4] The $120 billion in expenditures in 2000 is equal to $97.8 billion
in 1992 dollars when adjusted for inflation.
[5] U.S. General Accounting Office, Strategies to Manage Improper
Payments: Learning From Public and Private Sector Organizations,
[hyperlink, http://www.gao.gov/products/GAO-02-69G] (Washington D.C.:
Oct. 1, 2001).
[6] A deferral is an action taken to withhold funds from the states
until additional clarification or documentation is received from the
states regarding Medicaid costs claimed. A disallowance is a
determination by CMS that a claim or portion of a claim by a state for
federal funds is unallowable.
[7] The calculation of this amount does not include $1.15 billion in
disallowances of Medicaid amounts for Disproportionate Share Hospital
(DSH) claims in FY …92 that resulted from a change in the legislation
related to DSH. Including this amount would increase the average
disallowance to $527 million for FY90–93.
[8] Expenditure and disallowance data provided by CMS.
[9] U.S. General Accounting Office, Public Assistance: PARIS Project
Can Help States Reduce Improper Benefit Payments, [hyperlink,
http://www.gao.gov/products/GAO-01-935] (Washington, D.C.: Sept. 6,
2001).
[10] The Grants Administration Manual, issued by HHS, provides guidance
on implementing HHS policies on the administration of HHS grants.
Chapter 1-105 of the manual addresses the resolution of audit findings.
[End of section]
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